The present invention relates to funding and operation of an investment portfolio of finds of life insurance policies focused on a fundamental investment opportunity provided by a life insurance policy ownership.
By their nature, life insurance contracts are long term. However, insurance companies will lose 35-45% of policies issued in any given year by the fifth year; 50-60% of the policies by the tenth year, and 70-80% of these policies by the twentieth year. These high rates of lapse have a great impact on insurance companies' costs, which translate into higher costs for life insurance policy holders.
The above-described rates of loss are caused by the life insurance policy holders that forfeit their policies for reasons including: an inability to pay premiums, an urgent need for cash, and change in investment and insurance needs. These reasons and the life insurance policy holders' need to recoup whatever value has vested in their policies, in fact, gave rise to the viatical and life settlement companies. The viatical and life settlement companies redeem to the life insurance policy holders amounts of cash greater than what was inherent in their insurance policies, i.e. the cash surrender value.
These developments are of foremost concern to the insurance companies because third parties, i.e., viaticals and life settlement companies, entities that perform extensive financial and medical underwriting, yet have no insurable interest in the originally insured life insurance policy holders become owners of the insurance policies.
The viatical and life settlement companies select and purchase existing life insurance policies in accordance with the so-called viatical settlement and life settlement provider programs that are common in the life insurance industry. In accordance with these programs, the existing life insurance policies of individuals with relatively short life expectancies due to an illness and/or advanced age are acquired. These policies are sometimes referred to as “impaired lives”.
The “impaired lives” life insurance policies are generally owned by the individuals whose lives are being insured and the viatical and life settlement companies purchase these life insurance policies only following a medical review of the insured. The “underwriting” decisions and the amount the viatical and life settlement companies will offer to pay for such life insurance policy, are based fundamentally on an assessment of mortality of the insured.
Surrender or sale of a life insurance policy to the viatical and life settlement companies is detrimental to the Insurance companies. Continuous ownership by the insured, called “policy persistency”, will benefit the insurance companies by providing them with                additional income from collection of more premiums and/or more fees for providing insurance coverage;        additional investment income from investment of the collected premiums and fees;        lower expense unit costs because                    1. there are more policies to spread costs to and            2. renewed policies are less costly to maintain than newly issued policies;                        for Generally Accepted Accounting Principles (GAAP) purposes, acquisition costs, which can be amortized more slowly;        less cash surrender values paid out;        lower reserves, which need to be set aside; and        as a corollary, better mortality, which would allow companies to lower their premium rates and/or insurance charges.        
While maintenance of the ownership by the insured ultimately forces the insurance companies to pay higher dividends and death benefits, this downside is outweighed by the above-listed benefits.
What is needed is a cost-effective solution to the life insurance policy holders' changing financial needs that does not involve a life insurance policy surrender or sale to the viatical and life settlement companies. This solution should help eliminate premiums, provide cash, or provide a better or different investment and/or insurance solutions that will satisfy the life insurance policy holders by    1) helping to avoid ownership of existing life insurance policies by third parties;    2) encouraging retention of the original life insurance policies by providing more attractive returns to the life insurance policy holders and/or by reducing overall costs            a) without requiring medical/lifestyle/personal underwriting of the lives insured, and        b) without relying on the expected near term mortality of the lives insured as the source of investment returns; and            3) building the funds without relying on            a) trusts that purchase variable life insurance contracts on the lives of a select group of employees covered by the trust,        b) individual supporters of a foundation grouped together in one or more blocks where insurance is taken out on the group for the benefit of the foundation, and        c) variable life insurance to fund 412(i) defined benefit plans.                    (The 412(i) plan is a tax-qualified, defined benefit pension plan for business owners and their employees that must be funded with a combination of life insurance and annuities, or annuities alone.)                        